Equity release

lovegroved

I apologise if this isn t the correct site...I m a newby around here, but would welcome any views on my comments. I wish to release £100000 on my property which is valued at £380,000( no mortgage). This is to give £50K to each of my children to help them onto the property ladder. I have been quoted a fixed rate of 3.75%. I am 73 years old and could manage to pay a monthly sum that would cover the 3.75% interest and thus keep the debt at the original £100000,is this a good idea and would the gifts to my children be taxable at their end?
Many thanks in advance

GDB2222

You have a £325k exemption for inheritance tax, so the two gifts would be free of tax if you have not given away anything substantial in the last seven years. The slate is wiped clean after 7 years.

I have no idea whether taking out a debt at the age of 73 is a good idea. It seems quite a bad idea to me, but I can understand that you want to help your children. Is the 3.75% fixed for your lifetime?

I suppose that the alternative is to free up funds by down-sizing?

MortgageMamma

You could potentially take a traditional mortgage rather than equity release if your income supports the loan size.

There are new products available called RIOS. (retirement interest only mortgages) they are designed for those aged 55+ who wish to release equity from their property without the usual age restrictions. They work differently from equity release mortgages in that the interest is paid rather than rolling up and eating away at your estate.

These are new products as I said, and not all advisers are comfortable with them just yet as there are always questions about the wisdom of lending into retirement and some advisers are shying away from them for the fear of being sued further down the line.

I think if done properly these can be very useful products.

I've not done one yet myself but I just wanted to highlight the potential option to you.

MM

lovegroved

Yes the 3.75% is fixed for life. I am assuming that if I invested the money, I wouldn;t get a return of 3.75%.The thing that puts me off downsizing is this would be my last house move and I would dread not being happy there.

MortgageMamma

lovegroved wrote: »

Yes the 3.75% is fixed for life. I am assuming that if I invested the money, I wouldn;t get a return of 3.75%.The thing that puts me off downsizing is this would be my last house move and I would dread not being happy there.

Plus the upheaval of moving and having to relinquish some of your furniture and personal possessions. But it could be worth investigating. You could find a nice little cottage or apartment somewhere that you quite like. My father has recently moved into an over 55's community and he's having the time of his life, never seen him so happy. I know its not for everyone but my Dad when into this thinking he'd be unhappy.

Catswhiska

If you ever need to go into care it could be seen as deprivation of assets and will be treated as if you still had the money

lovegroved

The Equity release amount of 100000 is tax free and doesn't count towards the 325,000 inheritance allowance?

AnotherJoe

What happens if in say 5 years time you decide to move ? Are you at liberty to do ?
I take it you have no other savinsg ? What happens if you need money for the house ?
On its own giving away £100 k iis not necessarily bad but if you are that low on assets it seems very dangerous.

The £100k won't count towards inheritance as long as you live for 7 years afterwards. Otherwise there's a sliding scale.

GDB2222

lovegroved wrote: »

The Equity release amount of 100000 is tax free and doesn't count towards the 325,000 inheritance allowance?

Not quite.

The £100k is counted, if you die within the next 7 years. However, the first £325,000 is free of tax, so they won't have any tax liability on the £100,000, itself. However, it reduces the tax free allowance available when you die by £100k. That's if you die within 7 years of the gift.

If you live beyond the 7 year period, the £100,000 is ignored altogether, and you get the full £325k tax-free when you do die.

Bear in mind that there are additional exemptions, so your tax-free amount can be a lot more than £325k.

First, if you were married and your spouse died without using the whole of his tax free exemption, your estate benefits from that, too. So, if you still have the papers to do with your husband's estate, keep those.

Second, there's an extra allowance known as Main Residence Relief that gives an additional tax free amount of £125k currently, rising to £175k shortly.

I don't know how much you have apart from the house, but it's possible that Inheritance Tax is not an issue for you at all.

https://www.gov.uk/government/publications/inheritance-tax-main-residence-nil-rate-band-and-the-existing-nil-rate-band/inheritance-tax-main-residence-nil-rate-band-and-the-existing-nil-rate-band

Linton

lovegroved wrote: »

The Equity release amount of 100000 is tax free and doesn't count towards the 325,000 inheritance allowance?

No - if you take out £100K equity release your cash assets increase by £100K but the value of your estate after payment of debts is then reduced by your £100K debt so the total value of the estate for IHT purposes remains the same.

lovegroved

Many thanks you have saved me loads of time in researching the subject!!